- Members must still comply with the ethical standards and the fundamental principles.
- When dealing with situations that involve financial disagreements, members should be vigilant about conflicts of interest.
- To better prepare for such situations, firms should have policies in their quality control manuals that describe the types of prospective disputes and how to handle them.
By Alexandra Johnson
Chartered accountants play an integral part in their clients’ lives: celebrating wins, helping them build their livelihoods, and navigating paths through difficult times such as marriage separations and financial conflict.
While members want to assist their clients – some of whom they may have known for decades – there are times when they need to put their professional ethics first and walk away.
Sydney-based CA ANZ Australian conduct and discipline manager Kate Dixon cites one such case. An accountant who had acted for a husband and wife for 20 years was informed by the husband that he was leaving the relationship – 10 days before he told his wife.
“During that 10-day period,” says Dixon, “the husband paid a deposit for the purchase of a substantial property out of their joint account and exchanged contracts. Neither the member nor the wife knew that at the time, but the member subsequently found out when the husband struggled to get finance to go ahead with the purchase and there was a risk of loss of the deposit.
“The member kept acting for the husband, as he was trying to save the deal so the deposit wasn’t lost.”
Dixon says the wife trusted the accountant and didn’t know her husband was about to leave her.
“We know that the accountant could not tell the wife about the impending separation but he had to cease acting, given that he knew the wife didn’t have the full information.”
Good intentions can go wrong
Dixon says complaints are often received from clients where the member has said that they acted in a certain way to solve a problem for the client.
“Regardless of the fact that a member is trying to help a client avoid a negative consequence, they must still comply with the ethical standards and the fundamental principles.
“You can’t help a client by breaching your own obligations,” she emphasises.
“You can’t help a client by breaching your own obligations.”
In a similar scenario, Dixon says a member had his tax registration terminated because he had declared in the lodged tax returns that self-managed superannuation funds had been audited, when this was not correct.
“The member said he knew and trusted the auditors well and, with the lodgement deadlines looming, he didn’t check if the audits were complete. It turned out they had not been finalised.”
As a chartered accountant, if you are issuing a certificate or giving some other confirmation, you have your own duty to check the correctness of the relevant matter, says Dixon.
You can’t always be a white knight
NZ professional conduct leader Rebecca Stickney, who is based in Wellington, recalls a similar case of a member misguidedly trying to help a client threatened with insolvency.
“The member realised a property developer’s family home was at risk in the liquidation of their company, as a loan from the company to purchase the property could be called up by the liquidator. The member recommended a retrospective accounting treatment removing the asset from the company’s balance sheet and obscuring it from the liquidator.”
She says the member’s misconduct became apparent when the liquidator and client went to court, where the member’s behaviour was strongly criticised.
“What’s interesting was that there was no real benefit to the member, whose motivation was to help the client not lose their home, but in doing so compromised their own ethics.”
Dixon stresses that whenever there is an expectation for a member to rescue a client by bending or breaching the rules, they need to withdraw from the situation.
The risk of conflict of interest
When dealing with situations that involve financial disagreements, Stickney also urges members to be vigilant about conflicts of interest.
“In another case, an accountant was managing day-to-day business banking on behalf of a client business, whose owners were in a matrimonial dispute. The member made a payment on the instruction of one spouse/director, despite the other’s opposition. Although the member intended to help the clients at a challenging time, the Disciplinary Tribunal found conflict of interest and client monies obligations were breached.”
Stickney says other risk areas include “setting up companies for clients, which have the effect of phoenix trading the assets in dispute, and extinguishing the interest of another client or providing evidence in court proceedings for one client that could harm another’s interests, without being subpoenaed or compelled by the court”.
Have a process ready
To better prepare for such situations, Stickney says firms should have policies in their quality control manuals that describe the types of prospective disputes and how to handle them.
Recent role and mindset provisions introduced in the New Zealand and Australian codes of ethics require members to have the strength of character to act appropriately and in the public interest, and to possess an inquiring mind – being alert to changes in facts, circumstances and relationships that could compromise ethical compliance.
Says Stickney: “You need ask yourself, are you really serving the client’s interests or are you doing more harm than good? And, are you serving your own interests or compromising your ethics?”
Dos and don’ts of ethical conduct
|Get clear instructions and document them.||Don’t promise more than you can deliver.
|Communicate changes to scope, fees or timing clearly and on a timely basis.
||Don’t lie or give a false declaration on behalf of a client.
|Implement robust safeguards to address potential and actual conflicts of interest and re-evaluate them periodically.
||Don’t compromise your own obligations just to help a client.
|Be careful with confidentiality.
||Don’t keep acting if you shouldn’t.
|Understand your legal and ethical obligations, and protect yourself.||Don’t ignore problems or lie to cover a mistake.
|Remain alert to changes in facts, circumstances and relationships, and have an inquiring mind.|
The CA Advisory Group provides free, confidential support for chartered accountants facing ethical dilemmas or weighing career decisions.
Call 1300 137 322 (Australia) or 0800 4 69422 (New Zealand), or go to CA Advisory Group
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